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Doubts raised over helping hand for banks

DOHA: With the global recession fading fast and the local banking industry being financially quite comfortable -- as evidenced from their financials -- knowledgeable circles wonder if the government's decision to pick a further 10 percent stake in some banks announced on Monday, is a prudent and timely move.

Some suggest that since the state originally announced in late 2008 that it would buy 20 percent equity of the local banks, so it was morally bound to go ahead with the remaining 10 percent buyout.

But there are others who, looking purely at facts and figures, see the state gaining more through this 10 percent buyout than the 'beneficiary' banks themselves.

This, because the state (as represented by the Qatar Investment Authority which would actually be picking the stake) would be buying the stocks at prices 16 to 17 percent less than the current levels on average.

The cut-off date for the state to purchase these shares is October 12, 2008 when the index of the banking sector was 10,206 and the main index of the Qatari bourse was 7,030 and market capitalisation was QR313.9bn (less than $100bn).

The average price of the eight listed banking stocks at the time was a little over QR63, while the average yesterday was roughly QR75.

The only banks whose shares the state would be buying at more prices than current levels are those of Qatar Islamic Bank (QIB) and Qatar International Islamic Bank (QIIB).

The stocks of QIB, for instance, were ruling at QR97 as on October 12, 2008, while they were quoting at an average QR88.60 yesterday.

The index of the lending counters was 14,437 yesterday, and the main index of Qatar Exchange ( QE ) was 9,138, with the market capitalization having zoomed up to QR464.41bn (much more than $125bn).

Critics argue that the state's aim of buying a percentage of the equity of local banks at the peak of the global financial crisis two years ago was a good and timely move since the banks were feeling the heat of the recession and needed liquidity to ride over the turbulence.

But they say that the state should have bought the 20 percent stake in the targeted banks at one go at that time itself or at least released the last tranche of the sum a little earlier when the recessionary pressures were still there and the banking stocks were suffering, too.

Critics say they fail to appreciate the timing of the current buyout since the local banks are quite comfortable financially. If the aim was to financially back the banks, the QIA should have instead made long-term deposits in these banks for the sums being staked in equity buyout, and formed a company to look after its investment.

This would also have raised the liquidity of the local banking system (if at all that was the problem!) without disturbing the shareholding patterns of these listed entities. Huge term deposits would even have helped the banks to provide adequate financing for the 2022 event-linked mega projects, say critics.

According to them, the state buying shares at prices lower than present levels would hit the shareholders alone and no one else. Plus, those listed banking stocks that are bought by the state become immobile bringing trading volumes and values relatively down on the Qatari bourse.

Then, there is the immediate threat of the QE 's index coming down due to a feared correction in the banking stocks fuelled by the large buyout announcement.

And finally, there is the danger of the private banks slipping more under the control of the government since it would be holding as much as 20 percent stake in them, say critics. The 'state control' theory is, however, denied by some who say the banks would have the option of buying their stocks back from the government. Critics, on the other hand, say that although the buyout would not enable the state to earn stock dividends for 2010, the state should be entitled to dividend income in the current year (2011).

And since dividend yields of the local banks are quite lucrative, the state could benefit immensely from the buyout move this year as well as in the years to come, they maintain. Critics say the government should not make profits at the expense of at least small stock investors. The private sector is, meanwhile, gaga over the announcement and hope that the 'beneficiary' banks would provide 'soft loans on easier conditions' to them for projects. And banking industry sources confirm the optimism of the profit-oriented private sector is not misplaced.

© The Peninsula 2011